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PVR Inox reported a soft quarter, as anticipated. General Elections and a Cricket-heavy season pushed out blockbuster movies to Q1-end. Absence of tent-pole content impacted admits (-10% YoY), Occupancy (-3 ppt) and ATP (-5%). Rise in Opex/Screen (+4% YoY) pulled down core margins further. That shouldn’t deter investors though. Kalki’s strong performance (GBOC: INR 10bn+ till date) suggests movie going remain solely content driven. A strong line-up of movies across languages means Q2/Q3 should be sequentially stronger. Notwithstanding a weak start, management believes FY25 admits could be similar to FY24’s, underscoring its confidence in content pipeline. Receding impact of Hollywood strike should help normalise release calendar next year, translating into a more consistent financial performance. That should help realise revenue synergies of the merger. Management’s calibrated approach on screen addition, gradual pivot to asset-light model and planned divestment of non-core properties (INR 3.5bn) should aid free cash flow. Sporadic instances of screen closures by single-screen theatres highlight the pressure on sub-scale players. PVR Inox’s scale and financial discipline could facilitate further consolidation in the space, driving market share gains, in our view. We remain constructive. Reiterate BUY with INR 2,040 TP.

* 1QFY25 – expectedly soft: Consol. revenues declined 9% YoY (-5% QoQ) to INR 12bn (JMFe: INR 11.6bn). General Elections, IPL and T20 CWC impacted volume as well as BOC of movies. Number of movies released was down 13% YoY. Movies with INR 1bn+ GBOC was down from 7 to 3 (YoY). This not only impacted admits (-10% YoY) and occupancy (20.3%, -270bps YoY) but lowered PVR Inox’s ability to flex pricing. ATP declined 5% YoY, highest drop since COVID. Consequently, Movie ticketing declined 15%. 3% rise in SPH restricted F&B revenue decline to 6% YoY. Ad revenues saw 5% YoY increase. PreInd AS EBITDA margin of -3% missed our estimates of -2%. Net losses of INR 1.8bn were more than JMFe: -1.2bn. Net debt reduced marginally to INR 16.95bn (D/E: 0.23).

*  Outlook - Positive: 2Q has started on a good note. Kalki, which pulled in 16% of 1Q BOC in just 4 days, has continued its box office run in 2Q (has grossed INR 1,000cr+ globally till date). Hollywood lineup is looking up. Advanced bookings of “Deadpool & Wolverine” has been encouraging. Elections-led discruption in 1Q and lingering impact of Hollywood strikes mean movie release calendar will likely return to normalcy only by CY25/FY26. It however means many blockbuster movies are now bunched up in Q2/Q3. Such is the strength of the pipeline that Management expects FY25 admits to reach FY24’s. This is despite a slow start and lower number of net new screen additions (50; +3% YoY).

* Lower capex intensity a positive; Maintain BUY: A likely strong Q2-Q3 limits cuts to FY25E revenue (-1%). We however lower our FY25-27E core margin estimates by 30-70bps on marginally higher cost/screen (higher CAM/rental/other expenses). 1Q losses, higher depreciation charges (of RTU assets) and operating leverage however drive 4-30% cut to our FY25-27E EPS. Lower capex (less screen addition) and asset sale (INR 3.5bn capital release) supports DCF, restricting cuts to our DCF-based valuation. Our TP moves to INR 2,040 (from INR 2,070). Maintain BUY.

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